It’s estimated that nearly 40% of a company’s direct spend is from spot purchases—ad hoc purchases made “on the spot.” Learn what differentiates a spot buy and how your company can transform these into compliant purchases.
After months of planning, a full week of packing, and a day of travel, you’ve finally arrived at your luxury resort vacation. You quickly unpack your bag, dig through to grab your swimsuit so you can get into a beachfront chair ASAP, but come up empty-handed. You can’t believe it—you forgot your swimsuit at home. So, you grab your wallet, dash down the hall to the elevator, and buy a swimsuit from the lobby store.
You just spot purchased.
Spot buying is often thought of as a 180 from strategic sourcing. Whereas strategic sourcing involves long-term procurement commitments, spot purchasing (or spot buying) occurs when there is an immediate requirement and a purchase must be made, quite literally, “on the spot.” These purchases are usually unplanned, made up of small orders, and often paid for immediately.
These sorts of purchases don’t just happen on vacation; they happen all the time in the business world as well. In fact, they amount to nearly 40% of an organisation’s indirect spend activities. Spot buys normally feature one or more of the following traits:
They’re for an emergency.
They’re for an inexpensive purchase.
The transaction wasn’t complex.
They’re a unique purchase.
They belong to an unmanaged spend category.
1. Strategic sourcing
For most organisations, strategic sourcing makes up the majority of purchases. These purchases are those that are planned in advance, take into account company requirements and supplier capabilities and usually have long lead times.
Availability and price are considered in the decision, but equally important is the impact on the overall organisation. Finally, a strategic sourcing model encourages communication and aims to keep that communication open throughout the contract lifecycle.
2. Tactical sourcing
Where strategic sourcing emphasises communication and partnership, tactical sourcing has a different approach. Tactical sourcing is used to get items required to keep the business running or those that allow an employee to perform their job. Using this approach, organisations still use certain criteria to make their purchasing decisions, but fewer than that of a strategic sourcing approach.
Price and availability of delivery dates are the main factors considered during a tactical sourcing decision since purchases are made based on need. Each transaction is treated as a separate occurrence and they generally maintain a short-term approach.
3. Spot sourcing
Spot sourcing is usually not planned at all and more often than not, it’s performed by the end-user and not a procurement professional. These are mostly made up of small orders for one-time requirements and are often performed on an immediate payment and delivery basis.
Being a part of a business network allows buyers to quickly find what they need. It also allows suppliers to win business with a quick turnaround, potentially leading to new partnerships. But spot sourcing is often an under-managed spend as a result of its ad-hoc and user-based nature.
Spot purchases or spot buying is usually required when there is an immediate need for a good or service. These purchases are sometimes emergency purchases—for instance, perhaps the office printer has printed its last paper or perhaps the elevator no longer works, and you have an employee on crutches or in a wheelchair. Or perhaps the air conditioner stopped working in the middle of a brutal summer—you would end up calling a repairman immediately instead of making your staff sweat it out at their desks. These types of purchases would all be considered “spot buys.”
Spot buying is a necessity when buyers in your organisation need something economical, fast, and easy to obtain. Perhaps it’s not something that needs an ongoing contract or something that may need immediate attention. In circumstances like these, spot purchases are better. But, you don’t want these to turn into maverick buying – that’s why it’s important to keep your company’s spot buying purchase simple and easy for your team.
Almost half of companies’ indirect spend is made through spot purchasing. For the easiest spot buying process, it’s best to be a part of an online business network that quickly and succinctly connects you to sellers and suppliers. This allows for a more streamlined response system that gives your users an easy way to get a bid and make their purchase while still being compliant.
It’s true that in some circumstances, spot buying could’ve been made strategic with the right planning. But, still, there remain instances when spot purchasing or buying is unavoidable. Instead of banning it altogether, your organisation must create some sort of protocol. So, when it inevitably occurs, you’ll have better control and visibility into when and how spot purchasing happens.
To make sure you are getting the best price for spot purchase scenarios, use an e-procurement system that allows you to quickly convert a spot requisition into a request for quotation (RFQ) when the spot purchase request does not need complex technical or performance-based supplier evaluation.
Systems that allow you to create such quotations from the requisition itself, without the need to rekey most of the information in another system, will save time and increase compliance. Additionally, for spot purchase requests that need to go through an RFP/RFQ cycle due to complex technical or performance evaluation of suppliers, your procurement system should seamlessly connect with sourcing tools so that once the sourcing event is completed and a successful bid is awarded, it should easily allow you to convert the event into a requisition to be processed through your normal procurement process.
Additionally, your e-procurement system should facilitate collaboration with the necessary stakeholders during the sourcing process to ensure that the selected supplier and the products and services proposed by the supplier meet the requirements of the stakeholders involved.
Learn more about how Basware’s e-Procurement solutions can help you get a grip on spot purchasing and reduce maverick buying. Contact our team if you have any questions!